Andrew Kelly and Alicia Dark

BIFA update: Time for payment schedules, withholding payment & treatment of suppliers

Andrew Kelly and Alicia Dark

12 November, 2018

Security of payment

The recent passing of the Plumbing and Drainage Bill 2018 (Qld) by the Queensland Government, has provided answers to various questions raised by the industry in relation to the new security of payment regime and the operation of project bank accounts (PBAs) under the Building Industry Fairness (Security of Payment) Act 2017 (Qld) (BIFA).

The changes to the PBAs are already in effect.  Links to previous Construction Alerts in respect of the introduction of PBAs can be found at the end of this Alert.  As anticipated, it was confirmed by proclamation made last week that the changes to the security of payment provisions will come into effect on 17 December 2018.  The BIFA will then apply to all payment claims made from that date (regardless of whether contracts that may have been entered into prior to that date).

The changes highlight the necessity of ensuring that your contracts (whether head contracts, subcontracts or consultancy agreements) align with the new regime.

Changes to timing for payment schedules

Currently, a respondent has 10 business days for standard payment claims ($750,000 or less excluding GST) and 15 business days for complex payment claims (those $750,000 excluding GST or more) to provide a payment schedule under the Building and Construction Industry Payments Act 2004 (Qld) (BCIPA).

When the BIFA was originally passed, it provided that a payment schedule had to be issued within 25 business days after the date of the payment claim.  Practically, this was troublesome, given that, if the Queensland Building and Construction Commission Act 1991 (Qld) (QBCC Act) applied to the work performed, it meant that payment schedules could be issued after the due date for payment.

Now, due to the recent amendments, when the security of payment provisions under BIFA come into effect, the time for providing a payment schedule will be 15 business days, unless the contract provides for a shorter time frame.

Accordingly, we are encouraging participants in the industry to ensure that their construction contracts align with the QBCC Act and the BIFA to ensure that they provide the maximum amount of time possible for issuing payment schedules, whilst still complying with the maximum time period for payment under the QBCC Act (where building work has been performed).

PBAs

The amendments in respect of PBAs have the effect of making a head contractor liable to make payments to a subcontractor in certain circumstances and otherwise limit the head contractor’s ability to withhold or withdraw funds from PBAs.

Whereas previously a head contractor could potentially withhold payment pursuant to an entitlement under contract; now, if an amount is certified in a payment schedule, or otherwise assessed as payable, the head contractor will not be entitled to withhold amounts for any reason, unless those amounts are included in the payment schedule.  Amounts that the head contractor wants to withhold will be paid into the disputed funds PBA account and held there until the dispute is resolved.

Suppliers

Under the BIFA, PBAs do not apply to subcontractors who are suppliers.  The new changes amend the definition of a supplier.  Previously a supplier was defined as a subcontractor who is only required to supply goods and services without also carrying out building work, except if the goods supplied were specifically manufactured, or significantly modified, by the subcontractor for incorporation into, or for use in connection with, the building work to be carried out under the head contract.

Those exceptions have now been removed and instead a subcontractor will not be deemed to be a supplier if it is required to hold a licence or authority to lawfully supply the goods or services under either the Building Act 1975 (Qld), Electrical Safety Act 2002 (Qld), Plumbing and Drainage Act 2002 (Qld), QBCC Act or another other Act prescribed by regulations.

This is an important change given that the definition restricts which subcontractors will be deemed to be considered suppliers and accordingly whether head contractors will be required to incur administrative costs and potential liabilities attached to PBAs if not.

Other changes include:

  • imposing a 2 year maximum imprisonment penalty for head contractors unlawfully withdrawing part of the retention amount from the retention fund; and
  • changing the definition of money which must be paid into the PBA from money the subcontractor is ‘entitled to be paid’, to money the head contractor is ‘liable to pay’.

For more information on how the BIFA will affect you, please feel free to contact the authors or otherwise view our previous BIFA Construction Alerts via the following links:

  1. 24 August 2017;
  2. 13 October 2017;
  3. 30 October 2017;
  4. 27 February 2018;
  5. 2 March 2018; and
  6. 16 May 2018.